Why You Should Never Lease a Car: Buy Outright Instead

For many Canadians, the idea of leasing a car seems attractive. Lower monthly payments, driving a new vehicle every few years, and avoiding long-term commitments can make leasing appear like the perfect solution. However, if your goal is to build wealth and maximize your financial security, leasing is one of the worst decisions you can make. In this article, we’ll explore why leasing is a financial trap and why buying a car outright with cash is the smarter choice.

The True Cost of Leasing

At first glance, leasing appears cheaper. The monthly payments are often lower than car loan payments, and you don’t need a hefty down payment. However, leasing comes with hidden costs and long-term financial downsides that outweigh these short-term benefits.

1. You’re Always Paying for Depreciation

When you lease, your payments are based on the car’s depreciation over the lease term. This means you’re paying for the loss in value of a car you’ll never own. Unlike buying a car outright, leasing provides no asset or equity at the end of the term.

2. Recurring Payments Add Up

Leasing locks you into a cycle of recurring payments. Every few years, you’ll return the car and start a new lease. Over a decade or more, the total cost of these leases can far exceed the cost of buying a car outright.

Example:

Leasing a $30,000 car for $400/month over three years costs $14,400. After three leases (9 years), your total cost would be $43,200. At the end of this period, you have no equity or ownership.

Compare this to buying:

• Buying the same $30,000 car outright means no monthly payments after purchase.

• Over the same 9 years, if the car’s resale value drops to $5,000, your total cost is $25,000. That’s $18,200 less than leasing.

3. Mileage Limits and Fees

Leases come with mileage restrictions, often capped at 20,000 km per year. Exceeding this limit results in hefty penalties, sometimes as high as $0.25 per kilometer.

Example:

If you drive 25,000 km annually, you’ll exceed the limit by 5,000 km. At $0.25/km, you’ll pay an additional $1,250 at the end of the lease. Over three leases, this adds up to $3,750 in excess mileage fees.

4. Wear-and-Tear Penalties

At the end of a lease, the dealership will inspect the car for wear and tear. Even minor damage like scratches or dings can lead to additional charges, making leasing more expensive than it initially seems.

5. No Customization

Leasing doesn’t allow for personalizing your car. Whether it’s adding accessories, changing the paint color, or upgrading the stereo system, these options are off-limits in a leased vehicle.

Why Buying Outright is the Better Option

Buying a car outright may require more upfront cash, but the long-term benefits far outweigh the initial cost. Here’s why it’s the best option for building wealth and financial freedom.

1. No Monthly Payments

When you buy a car outright, you eliminate monthly payments altogether. This frees up your cash flow to invest, save, or cover other expenses. Over time, this approach can significantly boost your financial health.

2. You Own the Asset

Unlike leasing, buying outright gives you full ownership of the car. While vehicles depreciate, owning an asset—even one that loses value—is better than continually paying for something you’ll never own.

3. Lower Long-Term Costs

Example:

Purchase a $30,000 car outright and drive it for 10 years. Assuming the car depreciates by 10% annually, its value will be approximately $5,000 at the end of 10 years.

Total cost: $30,000 - $5,000 (resale value) = $25,000.
In contrast, leasing a $30,000 car for $400/month over three years costs $14,400 per lease. After three leases (9 years), your total cost is $43,200, with no asset to show for it.

4. No Restrictions

Owning your car means no mileage limits, no wear-and-tear penalties, and no restrictions on how you use or customize the vehicle. You have full freedom to drive as much as you want and modify the car to suit your preferences.

5. Potential for Savings

By purchasing a reliable used car outright, you can save even more. Used cars often provide excellent value, avoiding the steep depreciation of new vehicles. Additionally, you can use savings from a Tax-Free Savings Account (TFSA) or other investment accounts to fund the purchase.

The Wealth-Building Advantage

Leasing drains your wealth over time by locking you into perpetual payments. Buying a car outright, on the other hand, allows you to allocate more money toward investments and savings, helping you build long-term financial stability.

Example:

• Leasing Example: Leasing a $30,000 car for $400/month over three years costs $14,400. After three leases (9 years), your total cost is $43,200, with no equity or asset.

• Buying Example: Purchasing the same $30,000 car outright means no monthly payments. If you drive the car for 10 years and sell it for $5,000 at the end, your total cost is $25,000—a fraction of what multiple leases would cost over the same period.

When Leasing Might Make Sense

While buying outright is generally the better financial decision, there are a few situations where leasing could make sense:

• Short-Term Needs: If you need a car for a limited time (e.g., during a temporary work assignment).

• Business Use: Leasing may offer tax advantages for self-employed individuals or businesses that can deduct lease payments.

• Preference for New Cars: If you prioritize driving a new car every few years and are willing to pay a premium for this convenience.

Final Thoughts

Leasing a car might seem convenient, but it’s a costly decision that erodes your financial stability over time. If you want to build wealth, buying a car outright is the smarter choice. Not only do you avoid perpetual payments and restrictions, but you also gain the freedom and financial flexibility that comes with ownership.

Take control of your finances by saving for your next car purchase. Whether it’s through a TFSA or disciplined budgeting, investing in ownership over leasing will pay off in the long run. Remember, the road to wealth isn’t paved with recurring payments—it’s built on smart financial decisions and the freedom that comes with owning your assets.